Demand Management

Article
Aug 8, 2000

Demand Management

Coping with flight delays and congestion at airports

By G. Brian Busey & George C. Eads

August
2000

There
is no more vexing problem facing the airport and aviation community than
the growing number of air carrier flight delays and cancellations. As
everyone is aware, complaints by air travelers have risen dramatically
during the last few years. According to DOT Inspector General Kenneth
Mead, flight problems (delays, cancellations, and missed connections)
rank as the number one air traveler complaint. In the middle of this changing
dynamic are the airports, where managers are beginning to explore the
concept of demand management in an attempt to help alleviate pressure
on the system.

Delays have increased
substantially over just the last few years. As measured by the DOT/FAA,
which considers a flight "delayed" if it is more than 15 minutes
late in departing, delays have increased by over 50 percent and cancellations
have increased 68 percent during the last five years.

A considerable number
of these delays take the form of longer taxi-in and taxi-out times (the
time between an aircraft departing the gate and taking off and the time
between landing and reaching a gate). According to the DOT Inspector General's
recent Congressional testimony, at the largest U.S. airports the number
of flights experiencing taxi-out times of one hour or more increased 130
percent between 1995 and 1999.

Despite the FAA's
Spring/ Sum-mer initiative to reduce delays, in part by centralizing more
authority in the Air Traffic Con-trol System Com-mand Center in Herndon,
Virginia, delays appear to be continuing to in-crease. For example, preliminary
FAA data show that June 2000 was the worst month on record for delayed
flights. For June, the airlines reported more than 48,000 flight delays.
This compares with about 45,000 flight delays for July 1999, the previous
monthly record.

Sources of the Delay Problem
The problem of flight delays has many sources. Bad weather certainly is
a key cause. The outdated U.S. ATC system also bears a share of the responsibility
for delays, although the FAA has recently attempted to make some adjustments
designed to improve the efficiency of ATC operations. And although the
airlines are loathe to admit it, their scheduling and hubbing practices
also play a critical role in the rising tide of delays and cancellations.

Airlines have responded
to steadily rising passenger demand by adding flights to an aviation system
that has seen little increase in the nation's runway capacity at major
commercial airports. According to FAA data, revenue passenger miles ("RPMs")
increased by 4.8 percent and enplanements by 3.8 percent during 1999.

FAA forecasts that
RPMs will increase at an average annual rate of 4.1 percent during the
period 1999 through 2011. If so, this will produce a cumulative increase
of over 60 percent in airline traffic by 2011.

The FAA's forecasts
growth in regional/commuter traffic — fueled in part by the growth in
usage of regional jets — at a 7.4 percent annual increase in RPMs from
1999 to 2011. Indeed, though revenue passenger miles have almost doubled
since 1984, the average number of available seats per departure peaked
at 164 in that year and fell to 146 in 1997. This trend is not expected
to reverse. Boeing, in its Current Market Outlook for 2000, projects that
almost three-fourths of the deliveries between 1999 and 2018 will be "small
airplanes."

At the same time,
the prospects for major new domestic airports are remote; the last major
new airport to open in the U.S. was Denver International in 1995 and before
that it was Dallas/Ft. Worth International some 20 years earlier.

The predictable result
of these intersecting trends has been mushrooming flight delays and passenger
complaints. As the accompanying table shows, at many major U.S. airports
roughly one in three flights were delayed during April 2000.

This same DOT data
shows that 8,590 flights were cancelled by the major carriers at the 29
largest U.S. airports during April of this year.

So what can be done
about the rising tide of flight delays, cancellations, and consumer frustration?

Options for Delay Management
One obvious solution to aircraft congestion and delay is to build more
runway capacity. But while many major runway projects are in the planning
or construction phases, major runway projects involve enormous environmental
and political hurdles and thus sometimes require decades to complete,
if they ever get off the drawing board.

In the meantime, the
FAA, the airlines, and airport management are examining ways to improve
flight efficiency and reduce delays. The options tend to fall into two
categories:
• enhancing the supply of capacity within the airports' existing runway
configuration ("supply enhancement"); or
• decreasing the demand for runway capacity (demand management).

The aviation community
has been researching and experimenting with a number of supply enhancement
measures. For example, the FAA is considering authorizing new techniques
for aircraft approaches such as the Simultaneous Offset Instrument Approach
(SOIA), which should, in theory, permit more aircraft to use existing
runway capacity during poor weather conditions.

Another new technique
that FAA is trying is to place some aircraft into lower than normal altitudes
below 30,000 feet, which again increases capacity but at some cost to
fuel efficiency. These and other supply enhancement measures, however,
are at best a partial solution to the delay problem.

The more viable short-run
solutions to flight delays and cancellations must be found in a combination
of demand management measures. Indeed, even with the phase-out of the
slot system, the FAA and the airlines are nevertheless engaging in actively
managing demand for scarce runway capacity at major U.S. airports. The
basic strategy presently employed is known as "flow control,"
which involves the ATC imposing ground holds on flights during periods
of bad weather. A relatively new tactic for implementing "flow control"
is a process known as Collaborative Decision-Making (CDM). This process
allows the FAA and the airlines to cooperatively determine just which
flights will be delayed or cancelled when bad weather reduces available
runway capacity.

Analysis of the impact
of this system, however, shows that it tends to concentrate delays and
cancellations on flights that originate most closely to the airport experiencing
the bad weather problem. These are short-haul and commuter flights such
as the LAX-SFO shuttle service.

Airports also have
a role to play in managing flight delays and congestion. Although the
Airline Deregula-tion Act of 1978 preempts states and municipalities from
enacting laws or rules relating to air carrier prices, routes, or services,
the law expressly does not limit airport owners and operators from carrying
out their proprietary powers. Federal courts construing this so-called
proprietor's rights exception have included the management of noise and
congestion among authorized local proprietor powers.

DOT/FAA has also recognized
the legitimate role of airports in managing congestion and delays in the
final Policy Regarding Airport Rates and Charges ("Final Rates and
Charges Policy"), which sets standards for reasonable landing fees
and rental charges to the airlines (American Airlines, Inc. v. DOT, 202
F.3d 788,806).

In fact, the Final
Rates and Charges Policy expressly authorizes airports to use a "properly
structured peak pricing system that allocates limited resources using
price during periods of congestion."

Nevertheless, major
U.S. airports have not yet adopted peak pricing systems as an approach
to managing congestion and delay. This may be due, in part, to contractual
limits in existing lease and use agreements with airlines operating at
those airports and to the difficulty of designing and implementing an
effective peak period landing fee system.

Airport proprietors
considering development of local rules to manage congestion and delay
at their airports must also consider the Airport Noise and Capacity Act
of 1990 (ANCA) and Part 161 of the FAA regulations. Part 161 was adopted
to implement the provisions of ANCA that require local airports adopting
restrictions on Stage 3 aircraft (other than peak pricing) to submit such
rules to the FAA for review and approval. Part 161 requires elaborate
notification and justification, including a benefit/cost analysis of the
proposed restriction before the FAA will even consider the proposed local
restriction.

To date these regulations
appear to have deterred airport proprietors from developing new local
rules designed to deal with local noise or congestion problems. Recently,
San Francisco International Airport began to develop a local congestion
rule under the Part 161 framework. However, that effort was suspended
based on a tentative agreement between United Airlines and the airport.
Other airports including Burbank have begun to develop local noise regulations
under the procedures laid out in Part 161.

Outlook
Normally, when a commodity such as runway capacity is scarce and demand
is high, we use some form of the price system to allocate that capacity
to its most valuable use. But this is not happening at major U.S. airports.

Because federal law
requires airports to be available to all airfield users on reasonable
and non-discriminatory conditions, smaller aircraft such as turboprops
carrying 30 passengers have the same "right" to use the airfield
as a Boeing 757 carrying 180 passengers or a Boeing 747 carrying over
400. This situation effectively disguises the additional cost that smaller
aircraft impose on the national airport system — costs that passengers
ultimately bear in terms of lost time and additional expense resulting
from flight delays and cancellations.

The preliminary delay
and cancellation data for the Summer of 2000 suggest that delays are continuing
to increase. Although the FAA and the airlines reportedly are working
more closely to address the national delay problem, much more needs to
be done. Some of the approaches being pursued by the FAA and the airlines
such as CDM have the potential to exacerbate delays in certain categories
of flights (i.e., short haul and commuter) at major U.S. airports. Accordingly,
airport management needs to consider steps that it may take to reduce
and alleviate delays and congestion at the local level.

A key area where airport
management can help reduce passenger frustration is prompting the dissemination
of better and more timely information about delays and cancellations.

A Historical Perspective
— The Slot System
When examining today's problem of flight delays and cancellations, it
is useful to reflect on history. During the 1960s, the growing use of
jet aircraft, improvements in commercial air service, and rising discretionary
incomes led to dramatic increases in demand for passenger air service.
By the mid to late 1960s this growing demand resulted in substantial congestion
and flight delays at a number of major U.S. airports.

Initially, at the
urging of federal regulators, the airlines attempted to agree on voluntary
reductions in schedules at the major congested airports. When these negotiations
failed, in 1968 the FAA adopted the High Density Rule — also known as
the slot system — which limited the number of instrument flight rule operations
per hour or half hour periods at five heavily-congested airports. The
slot system was intended to be a "temporary" rule, but it eventually
was extended for more than 30 years.

Recently, as part
of AIR-21 Congress has begun to eliminate the slot system, directing the
FAA to award a large number of new slots at the four remaining slot-controlled
airports. Although there was a consensus that the slot system had a negative
impact on airline competition, there is not yet a consensus on how to
manage the scarce runway capacity at major domestic airports. Some mechanism
for managing excess demand for runway capacity, however, will have to
be found. For instance, since AIR-21 was enacted, the airlines have applied
for more than 600 new slot exemptions to expand flights at LaGuardia Airport
alone.

About the Authors
Brian Busey is a partner of Morrison & Foer-ster LLP, where he specializes
in aviation and airport law. He has represented airports and airport proprietors
in administrative and court litigation, including San Francisco, Los Angeles,
and Denver International airports, among others. He earned his B.S. and
M.A. degrees at Georgetown University.

Dr. George Eads is
vice president of Charles River Associates, an economic and transportation
consulting firm. He is internationally recognized for his work in the
economics of both the automotive and airline industries, and has served
on the President's Council of Economic Advisers and as a special assistant
in the Antitrust Division of the U.S. Department of Justice.

Mark Kiefer and Shomik
Mendiratta of Charles River Associates also contributed to this piece.
The views expressed are the authors' and are not intended to reflect the
views of their clients or those of their firms.